India's Monsoon Politics

UNCLAS NEW DELHI 001754

INFO AMCONSUL KOLKATA PRIORITY
AMCONSUL CHENNAI PRIORITY
AMCONSUL MUMBAI PRIORITY
AMCONSUL HYDERABAD PRIORITY
USDA FAS WASHDC PRIORITY
USDOC WASHDC

SENSITIVE
E.O. 12958: N/A
TAGS: EAGR ECON ETRD PGOV WTRO IN
SUBJECT: India's Monsoon Politics


1. (SBU) Summary: The Indian government (GOI) is trying to manage
a poor monsoon season expected to result in low yields in rice,
sugar cane, oilseeds and other crops. Between rising food prices
and burdensome subsidy costs, the Food and Agriculture Minister and
United Progressive Alliance (UPA) government face growing criticism
from both the Left and the Right. While trying to shift the blame
on state governments' inability to deliver on programs for
alternative crops and irrigation schemes, the central government has
invoked the draconian "Essential Commodities Act" which allows it to
seize private stocks. It has procured sugar on the world market
--sending global prices skyrocketing. Next GOI actions likely
include: a broad (and expensive) social safety net for farmers
including further farm loan waivers; a delay in the UPA's election
promise of enacting a National Food Security law within 100 days of
coming into power; and increasing government intervention in Indian
agriculture and food markets. The impact of a poor monsoon on
overall agricultural production - while technically manageable -
could retard India's GDP growth in 2009/10. End summary.

The 2009 "Truant" Monsoon...
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2. (SBU) Both the U.S. Department of Agriculture and the Indian
government estimate 2009 monsoon rainfall at roughly 70-80 percent
of "normal." Late and patchy rains are likely to result in poor
"kharif" season crops, with rice production forecast to be hit the
hardest. Sugar cane and oilseeds are also suffering from lack of
rain. The Indian Meteorological Department (IMD) has been highly
criticized for bad forecasting this season as well as poor
communication with farmers making critical planting decisions. Over
60 percent of Indian food crops depend on annual monsoon rains. The
remaining 40 percent under irrigated cropland also depend on monsoon
rains to replenish the water table. Falling water table levels have
led to increased energy use to pump water from deeper (and deeper)
wells.

Leads to Harsh Criticism of Ag Minister
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3. (SBU) Minister Sharad Pawar holds the dual portfolio of Minster
of Food and Agriculture just as he did in the previous UPA
government. In key cabinet meetings last week and in the recent
session of Parliament, Pawar was on the defensive, trying to explain
why the rural sector was not better prepared to ride out a dry
season. Critics say Pawar neglected extension programs for farmers,
failed to push irrigation schemes and delayed development and
delivery of new (drought resistant) seed varieties to farmers.

Government Enters the Market
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4. (U) In an effort to control rising food price inflation, the
Indian government has entered the world market to purchase sugar and
pulses (peas, beans and lentils). The Food Corporation of India and
other parastatal trading companies are procuring essential
commodities in significant quantities. Sugar purchases by
parastatals and private trade have sent world prices soaring.
Recent media reports indicate that the GOI is keen to enter
government-to-government deals to ensure sufficient supplies of
pulses. Large quantities of pulses are being imported by government
parastatals from Canada and Burma.

... Food Prices Continue to Edge Upward
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5. (U) Rising food prices continue to pose a serious political
problem for the government. India's wholesale price index-based
inflation has declined after peaking at around 13 percent one year
ago. Food price inflation continues to hover at around 10 percent.
According to experts, the wholesale price index-based inflation does
not capture the full impact of food price increases as the food
group weight in the index is only around 15 percent. The consumer
price index-based inflation, which is a more realistic indicator of
the food price inflation, has been hovering at around 13 percent in
recent months. As food spending typically accounts for around 50
percent of an Aam Aadmi's (common man's) family budget in India, the
high food prices have eroded purchasing power, posing a further
challenge to government efforts to address food and nutrition
security.

(U) In the light of a significant decline in agricultural production
due to the poor monsoon, the GOI's Central Statistical Organization
is likely to revise its estimate for agricultural growth down from
the expected 3 percent. This could have a negative impact on India's
relatively vibrant economic growth rate of 6-7 percent. In an
emergency meeting of Chief Ministers called on August 17, the Prime
Minister emphasized a crack-down on "hoarding and speculating" of

commodities. The Finance Minister has also weighed in to assure
Indians that drinking water supplies will guaranteed and urged
citizens not to panic.

No Exports, "Election" Stocks Held by GOI
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6. (SBU) The central government is sitting on record levels of
wheat and rice that were accumulated after two good, back-to-back
monsoons supported by high guarantee prices. During the run-up to
the 2009 elections, Ag Minister Pawar oversaw massive purchases of
wheat and rice into the state-held warehouses across the country.

In fact, the Indian government has purchased over 32 million tons of
rice and 25 million tons of wheat (roughly equal to the combined
harvests of Argentina and Australia). At present, exports of wheat
and rice are banned (except for a very small amount of high-priced
basmati rice). Media rumors suggest that the government may ban
exports of other food items - such as vegetables-if prices continue
to rise.

Originally, the government planned to move the accumulated
wheat/rice stocks to below-poverty line citizens under proposed
national food security legislation. The Congress Party still hopes
to fulfill an election promise of providing 25 kilograms of
rice/wheat per month per family at a highly subsidized price of Rs.
3/ kilo. However, until a full assessment of the new crop can be
undertaken, the food security legislation is on hold.

Blame the States....
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7. (SBU) As political pressure mounts, and food inflation creeps
up, the Congress party has been trying to place the blame for the
drought situation on state governments. Lack of long term planning,
especially for irrigation infrastructure and alternative crops are
the two key criticisms. From the Left, the government is fending
off accusations of having allowed speculation in food prices.
Citing "abnormal profits," the central government has also invoked
the draconian Essential Commodities Act allowing the government to
seize privately-held food stocks, if necessary.

....Expand Social Safety Net Programs
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8. (U) Ag Minster Pawar has called a meeting of key government
officials on August 19 to review the national situation both from a
stocks perspective and to prepare for the second seasonal "rabi"
crop to be planted in October/November. In his Independence Day
speech on August 15, the Prime Minster promised support to farmers.
Already, large scale social safety net programs such as the flagship
National Rural Employment Guarantee Program are being expanded
around the country.

The Food and Ag Subsidy Balloons
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9. (SBU) As the GOI moves to support farmers with loan waivers,
cheap credit and inputs, it is struggling with a growing subsidy
bill. New steps likely to add to the GOI's $32 billion food and
agriculture subsidy cost include a proposed further farm loan
waiver, a diesel subsidy for irrigation and free food to drought-hit
states. The government will soon need to take a decision on new crop
support prices. The official minimum support prices for fall
harvested crops will be watched closely by both farmers and traders
in the context of the emerging drought situation.

Comment:
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10. (SBU) A significant decline in India's agricultural production
following a poor monsoon exposes the vulnerability of Indian
agriculture to vagaries of weather. The GOI has done little long
term work to hedge against any such significant redline in
agricultural production. Low or negative agricultural growth could
temper India's overall economic growth this fiscal year, which is
already under pressure from the global recession. India's political
approach to "monsoon" management in 2009 will drive up global food
prices due to the GOI's knee jerk tendency to intervene in the
markets.

The poor monsoon and food price rises pose some short term political
challenges for the government. There are state assembly elections
coming up in Maharashtra and Haryana, two politically important
states. It is clear from the Prime Minister's direct interventions
that the government is feeling the heat at the moment. All Indian
politicians are acutely mindful of the sensitivity of the Indian

voter to food prices. In this context, Sharad Pawar is particularly
on the hotseat because not only is he the Food and Agriculture
Minister but also from Maharashtra and closely associated with
sugar, which leads the list of food products with rising prices.
But, the government can take comfort in the fact one erratic monsoon
will not cause lasting political damage and the general election is
still more than four years away.

The UPA government remains frantic in its defense of drought
management. The upcoming Maharashtra State election will allow the
media and political parties to exacerbate the price rise issue. Key
issues like how to reinvigorate growth in the ag sector and how to
re-orient agricultural research and education will have to wait
until the political storm -and monsoon blues -are over.

ROEMER